Big businesses may have winced last year as the pandemic took huge bites out of their revenues and profits, but the pain wasn’t universal.
Analysis of financial records from banks to Big Tech shows that the giants of the corporate world have saved fortunes on travel, and other administrative expenses as employees worked from home.
Among the biggest savers have been Google, Amazon and HSBC, each reporting cost-cuts of more than $1 billion and citing Covid-19 as a key contributor to this in company filings. With savings like that, the question now is whether splashing the cash on business trips, entertainment and physical advertising is ever going to return to pre-pandemic levels.
The answer, though seemingly obvious, may not be quite as simple as it first appears. Rather than purely cracking down on existing expenses regimes to maintain the savings of the past year, analysts expect a “redirection” of costs into new expenses, from equipment that improves home offices to contributing to household electricity bills.
Yet locking-in at least some of those savings is inevitable, given that corporations forced into the working from home revolution are looking at maintaining the practice via long-term “hybrid working”, with some staff stationed in traditional offices and others at home. Foreign and domestic work trips for business meetings are increasingly likely to be axed in favour of video calls, whether from the company HQ or the kitchen table.
HSBC said in a first-quarter update this year that its adjusted operating expenses of $8.2 billion were $1.1 billion lower than the final quarter of last year. Britain’s biggest bank said that this was primarily because the previous quarter included the UK bank levy charge of $800 million, but it highlighted a £100 million reduction in marketing and travel costs.
Similar savings were reflected in its annual report for last year, with a combination of cost-saving programmes, cuts in performance-related pay and lower discretionary spending because of the pandemic helping to cut operating expenses by $1.1 billion to $31.5 billion. Within that figure, marketing and travel costs were down by $600 million.
The decreases were offset in part by investments in technology to enhance digital and automation capabilities. The bank added that a 45 per cent fall in adjusted profit before tax last year had been “partly mitigated” by the savings.
HSBC was not alone. Alphabet, Google’s parent company, reported savings of $268 million in expenses from company promotions, travel and entertainment in the first quarter of this year, “primarily as a result of Covid-19”. On an annual basis, this would be well above $1 billion.
Its financial report for 2020 showed that advertising and promotional expenses had dropped by $1.4 billion as the company cut spending, rescheduled campaigns and put on events in digital-only formats. Alphabet’s travel and entertainment expenses fell by $371 million.
Amazon saved nearly $1 billion in employee travel expenses last year, according to its third-quarter earnings for 2020. “There’s some benefits going on right now,” Brian Olsavsky, the ecommerce group’s chief financial officer, said, adding that travel had “ground to a halt” and that the company also had saved money from reduced marketing costs. Internal travel expenses would likely resume “at a later date”, he added, but not at pre-pandemic levels.
Despite the savings, Amazon, one of the pandemic’s big winners, said that overall expenses had increased in the fourth quarter, with coronavirus-related costs adding $4 billion in the period.
Other companies to make savings in travel and discretionary spending include Weir Group, the engineer, which saved £30 million last year (broadly offset by incremental costs). Tesco Bank reported a £136 million decrease in operating expenses from 2019, citing restructuring and an “overall reduction in activity due to the Covid-19 pandemic”. Bunzl, the provider of workplace supplies, said that its operational efficiency had been supported by lower travel expenses; on hotel and travel costs for non-executive directors attending board meetings, it saved £65,400. And in its first-quarter results, BT noted that a 7 per cent reduction in adjusted earnings before interest, tax and other charges had been “partly offset by Covid-19 mitigating actions, such as short-term reductions in discretionary spend”, although it did not specify how much had been saved.
Sean Drury, employment partner at PwC, said that companies would be looking to adjust their spending based on increasing individual productivity. Bosses will be more reluctant to allow employees to go on business trips, not only to avoid spending company money on hotels, food and flights but also because they are incommunicado while travelling. “Now we’re used to video conferencing, organisations will be not necessarily banning foreign business travel, but they will be questioning, especially around short-term trips, whether the same value can be created by using technology,” he said.
As electricity bills rise for those working at home but fall for employers, business leaders are even looking at reimbursement options. Policies would be difficult to draw up, Drury said. “How do you allocate how much of that electricity is caused by your child playing on the Xbox or you on video calls?”
Opinions are split over the extent to which the switch to home working will endure. Research published last month by Deloitte found that two thirds of chief financial officers believed that the bulk of their staff would return to the office by the third quarter of this year.
Richard Houston, Deloitte’s senior partner and chief executive, said that some business leaders were “looking to combine the benefits of office working — from collaboration to innovation — with the flexibility of remote working”.
Goldman Sachs has been a big advocate for a return to normal office working. David Solomon, the bank’s chief executive, has described working from home as an “aberration” and has insisted that “it’s not the new normal”.
In contrast, HSBC expects eventually to shrink its property footprint by 40 per cent, with Noel Quinn, its chief executive, saying that it would retain its Canary Wharf headquarters but would not renew leases on “premises elsewhere in London”. He saw a “material” opportunity for the bank, with research also suggesting that workers were more productive from home.
Ewen Stevenson, chief financial officer at HSBC, expects bankers to trim the number of business trips they take as video conferences become the norm. He told Bloomberg, the news provider: “We’ve basically baked-in about half the costs of travel going forward by using lot more video technology and having people go on fewer, longer trips when they do travel.”
Facebook and Twitter have said that their employees can continue working from home after lockdowns, despite peers such as Microsoft appearing to be going off the idea.
All companies seem to agree, however, that after Covid business life is never going to be quite the same again.